WASHINGTON - November 6, 2008 - The number of out-of-work Americans continuing to draw unemployment benefits has surged to a 25-year high, while shoppers turned extra frugal, further proof of the damage from sinking economy, credit problems and financial stresses.

The Labor Department reported Thursday that the number of people continuing to draw unemployment benefits jumped by 122,000 to 3.84 million in late October. It was the highest level since late February 1983, when the country was struggling to recover from a long and painful recession.

New filings for jobless benefits last week dipped to 481,000, a still-elevated level that suggests companies are in a cost-cutting mode.

Democrats in Congress are pushing to include an extension of unemployment benefits in a new stimulus package, which could be taken up this month. Benefits typically last 26 weeks.

Congress approved a 13-week extension of benefits in June, and the department said about 773,000 additional people claimed benefits through that program for the week ending October 18, the most recent data available. That extension is scheduled to end next June.

Americans hit by layoffs, shrinking nest eggs and other stresses are pulling back even more, sending sales at many big retailers down in what may have been the weakest October in decades. That further darkened the outlook for the holiday sales season.

Target Corp. and Costco were among the many retailers reporting sales declines last month. Wal-Mart Stores Inc., the world's largest retailer, however, logged a sales gain.

On Wall Street, stocks slumped. The Dow Jones industrials were down about 90 points in morning trading.

Hoping to prevent a deep recession, the Federal Reserve ratcheted down interest rates last week to 1 percent and left the door open to further reductions.

The country's economic state has rapidly deteriorated in just a few months. The economy contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since the last recession, in 2001, and reflected a massive pull back by consumers.

With the economy sinking and consumers’ appetites flagging, employers have been slashing jobs. They are expected to cut around 200,000 jobs when the government releases the October employment report on Friday. The unemployment rate - now at 6.1 percent - is expected to climb to 6.3 percent in October.

As American consumers watch jobs disappear and their wealth shrink, they'll probably retrench even further.

That's why analysts predict the economy will continue shrinking in the current October-December quarter and during the first quarter of next year. That more than fulfills the classic definition of a recession: two straight quarters of contracting economic activity.

Yet another report out Thursday showed the efficiency of U.S. workers slowed sharply in the summer as overall production, or output, declined, reflecting the hit to consumers from housing, credit and financial troubles.